Are CDs FDIC Insured? – Frugal Rules

When you have cash on hand that you don’t want to put into the stock market or another investment vehicle, you could let the funds collect dust in a traditional savings account or take advantage of certificates of deposit (CDs). 

A CD tends to have a higher interest rate than a savings account, allowing you to grow your wealth faster. However, savers may wonder if CDs are FDIC insured. 

If you want to ensure the money you put into a CD is safe, we break down everything you need to know about FDIC insurance for these savings accounts.

Are CDs FDIC Insured? 

Yes, a CD can be covered by FDIC insurance if an insured financial institution offers it. Savers should choose to open a certificate of deposit that comes with deposit insurance coverage.

The draw of an FDIC-insured asset is that the funds are backed by the full faith and credit of the U.S. government. In other words, if the FDIC-insured bank you are working with experiences a bank failure, your funds are protected against loss.

Not all investments come with this protection. A few investments that aren’t FDIC insured include:

• Stocks
• Bonds
• Mutual funds
• Crypto
• Life insurance policies
• Annuities
• U.S. Treasury bills, bonds, or notes

Other types of accounts that can be FDIC insured include high-yield savings accounts, checking accounts, and money market accounts. 

What Is FDIC Insurance, and How Does It Work? 

The Federal Deposit Insurance Corporation (FDIC) is a government agency that helps regulate the banking industry. It was established in the 1930s in response to a severe banking crisis. 

One of this organization’s key functions is to offer insurance on consumer deposit products. If you work with an FDIC-insured bank, deposits are insured for up to at least $250,000 per depositor.

FDIC coverage is automatic. If the insured financial institution fails, then the FDIC steps in to cover your losses. 

For example, if you had $200,000 in a CD at a failed bank, the FDIC would either send you a check for that amount or open a new account for you in the insured balance at another federally insured bank. 

Most banks are FDIC members. But, as a saver, it’s always a good idea to verify a bank’s FDIC membership before committing your funds to any CDs or online savings accounts. You can confirm an institution’s membership through the Bank Find tool. 

What Is the Insurance Limit on CDs? 

The FDIC insurance limit is $250,000 per depositor, per FDIC-insured bank, per ownership category. Different ownership categories matter when it comes to your insured deposit limits. 

For example, if you hold CDs and a savings account at the same bank, the combined total of your accounts is subject to FDIC insurance limits. You could open a savings account with a $100,000 balance and a CD with a $150,000 balance at the same bank without giving up FDIC coverage. 

However, if you had more to save, you might consider working with a different financial institution. For example, you might have another $50,000 to put into a CD at another bank. 

Certain retirement accounts, like IRAs, aren’t lumped into the same ownership category as your savings accounts and CDs. With that, you might be able to get more coverage without having to use a separate financial institution. 

Another way to increase your coverage is to open a trust or joint account. If you and a spouse open a joint CD and savings account, the FDIC insurance limit is $500,000 because each owner is entitled to $250,000 in coverage. 

Similarly, if you open a trust account with three individuals on the ownership paperwork, the coverage limit rises to $750,000. 

By understanding the rules, you can make sure your funds are always FDIC insured. If you want help estimating how much of your funds are protected, consider using the FDIC’s Electronic Deposit Insurance Estimator (EDIE) tool. 

Are There Any CDs That Are Not FDIC Insured? 

Yes, some CDs aren’t FDIC insured.

One example is a share account, which is essentially a credit union’s version of a CD. Instead of FDIC insurance, some credit unions offer similar insurance coverage under the National Credit Union Administration (NCUA). 

NCUA insurance mirrors the FDIC insurance limit. As a saver, you’ll find a $250,000 legal limit on deposits held at a credit union, including share accounts. 

Unfortunately, some CDs don’t offer any deposit insurance at all. For example, foreign CDs issued through a foreign bank aren’t eligible for FDIC insurance. 

Beyond that, brokered CDs, which are sold through someone other than a bank, may or may not be covered by FDIC insurance. Typically, brokered CDs are available through brokerage platforms, or you might hear about one from your financial advisor. 

Before jumping into a brokered CD, check whether or not it carries FDIC insurance. If it doesn’t, you’ll know the risks before moving forward. 

Additionally, any CDs offered by banks that aren’t FDIC members won’t come with FDIC deposit insurance.

If you are looking for an FDIC-insured financial institution that offers competitive CD rates, consider CIT Bank. As of writing, you can lock in a five percent APY for a six-month CD. 

If you have over $5,000 to save, you can tap into an even higher interest rate through CIT Bank’s Platinum Savings Account. 

Read our CIT Bank review to learn more about the institution.

Pros and Cons of CDs 

Every financial product has advantages and disadvantages. Before opening up a CD, it’s important to consider all the benefits and downsides. 

Pros:

• Predictable growth: When you open a CD, you’ll know exactly how much you can expect to earn in interest by the end of the term. 
• Higher rates: It’s usually possible to find higher rates through a CD than another deposit account. Even some of the best savings accounts fall short of top CD rates. 
• Secure storage: If you choose an FDIC-insured CD, your funds are protected against loss up to the limit. 

Cons:

• Early withdrawal penalties: If you need to access your funds before the CD matures, you’ll likely face an early withdrawal penalty. 
• Inflation can eat into returns: While you can lock in a rate of return, it’s possible that inflation will outpace your returns. This diminishes the purchasing power for the funds locked into your CD. 
• Higher returns possible elsewhere: If you take on the risk tied to investing in other assets, you might be able to generate higher returns than a CD can offer. 

Ultimately, a CD is a great choice for savers who want a predictable return on their funds. However, if you might need to use the funds during the CD’s term, a high-yield savings account could be a better fit. 

Bottom Line 

If you are a saver who has been asking yourself if CDs are safe, then you can breathe easier. Working with an FDIC-insured institution will ensure your funds are safe in a CD for up to $250,000 per person. 

Don’t wait to open a CD if it suits your financial goals. CIT Bank is a good place to start your search for top CD rates.